Cabela's 2012 Annual Report Download - page 34

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24
Changes in interest rates could have a negative impact on our earnings.
In connection with our Financial Services segment, we borrow money from institutions and accept funds
by issuing brokered and non-brokered certificates of deposit and secured borrowings, which we then lend to
cardholders. We earn interest on the cardholders’ account balances, and pay interest on the certificates of deposit
and borrowings we use to fund those loans. Changes in these two interest rates affect the value of the assets and
liabilities of our Financial Services segment. If the rate of interest we pay on borrowings increases more (or more
rapidly) than the rate of interest we earn on loans, our net interest income, and therefore our earnings, could fall.
Our earnings could also be materially adversely affected if the rates on our credit card account balances fall more
quickly than those on our borrowings. In the event interest rates rise, the spread between the interest rate we pay
on our borrowings and the fees we earn from these accounts may change and our profitability may be materially
adversely affected. In addition, approximately 33% of our cardholders did not have a balance on their credit card
accounts at the end of 2012. No interest is earned if the account is paid in full within 25 days of the billing cycle,
but we do earn other fees from these accounts such as Visa interchange fees.
Credit card industry litigation and regulation could adversely impact the amount of revenue our
Financial Services segment generates from interchange fees.
Our Financial Services segment faces possible risk from the outcomes of certain credit card industry
litigation and potential regulation of interchange fees. For example, a number of entities, each purporting to
represent a class of retail merchants, have sued Visa and several member banks, and other credit card associations,
alleging, among other things, that Visa and its member banks have violated United States antitrust laws by
conspiring to fix the level of interchange fees. On July 13, 2012, the parties to this litigation announced that they
had entered into a memorandum of understanding, which subject to certain conditions, including court approval,
obligates the parties to enter into a settlement agreement to resolve the claims brought by the class members. On
November 9, 2012, the settlement received preliminary court approval. The settlement agreement requires, among
other things, (i) the distribution to class merchants of an amount equal to 10 basis points of default interchange
across all credit rate categories for a period of eight consecutive months, which otherwise would have been
paid to issuers like WFB, (ii) Visa to change its rules to allow merchants to charge a surcharge on credit card
transactions subject to a cap, and (iii) Visa to meet with merchant buying groups that seek to negotiate interchange
rates collectively. We have recorded a liability of $12.5 million as of December 29, 2012, related to the proposed
settlement as a reduction of interchange income in the Financial Services segment. To date, we have not been
named as a defendant in any credit card industry lawsuits. Moreover, the amount of interchange fees that are
charged to merchants could be capped or limited by credit card industry regulation. If the interchange fees that are
charged to merchants are reduced as a result of the interchange lawsuits or regulation, the financial condition and
results of operations of our Financial Services segment may be negatively impacted.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.